As investors balked, some bankers and Saudi officials still hoped to
achieve the crown prince’s target price of $2 trillion. They wound up
settling for less.

Early on Oct. 15,
a group of international investment bankers delivered some unwelcome
news to top executives of Saudi Arabia’s giant oil company, Saudi
Aramco.

The bankers, gathered at
Aramco’s headquarters in Dhahran, reported that global investors weren’t
as bullish on the company’s initial public offering of stock as the
officials had expected, said two people who were in the room and three
who were briefed on the meeting. That meant Aramco appeared unlikely to
reach the $2 trillion valuation wanted by Saudi Arabia’s crown prince,
Mohammed bin Salman.

Instead, a banker
from JPMorgan Chase, presenting on behalf of the group, explained that
investors viewed Aramco as worth $1.1 trillion to $1.7 trillion.

Aramco
executives, who hadn’t seen the news coming, were angry. Saudi Arabia
was counting on the I.P.O. to attract foreign investment to help
diversify its economy away from oil. An Aramco I.P.O. valuation reduced
by forecasts of weakening global demand for oil and geopolitical jitters
could hurt that effort.

On Thursday, Saudi Aramco priced the I.P.O
at 32 riyals, or $8.53, a share, valuing the company at $1.7 trillion.
The offering is expected to raise $25.6 billion — a fraction of the $100
billion that Prince Mohammed originally imagined. The company’s shares
are set to begin trading Wednesday on Saudi’s stock exchange, known as
the Tadawul.

The result was not what
Saudi officials had in mind. Rather than being listed in New York or
London, shares of Aramco are being sold primarily to investors in Saudi
Arabia and in neighboring countries. Some of the international banks
hired to underwrite the deal have instead taken on secondary roles, with
the I.P.O. share sales being overseen by two Saudi banks and the
British bank HSBC.

“The Aramco I.P.O. was meant to be Saudi
Arabia’s debut ball to global investors,” said Karen Young, a resident
scholar at the American Enterprise Institute. “Instead, it will be more
of a family reunion.”

According to
interviews with a dozen underwriters, strategists and others briefed on
the I.P.O., who spoke on the condition of anonymity to discuss
confidential negotiations, Aramco’s journey from private to public
company was an unwieldy and at times fractious deal-making process. It
involved 25 banks, three financial advisers, numerous Aramco company
officials, at least two Saudi government committees and the crown prince
himself.

The idea to sell shares in state-owned Aramco, the world’s most profitable company, which for decades has been an engine of the Saudi economy, was foundational
to Prince Mohammed’s Vision 2030 plan to modernize that economy.
Released in 2016, that blueprint helped vault Prince Mohammed, then the
deputy crown prince, to become the heir apparent to his father, King
Salman. JPMorgan, Morgan Stanley and HSBC were brought in to start the
long process of preparing the company for sale to public investors.

The I.P.O. was initially proposed to take place in 2018, but then shelved
amid concerns over how highly the company would be valued and where it
should list its shares. That year also saw Prince Mohammed come under
global condemnation after the brutal killing of Jamal Khashoggi, a
Washington Post columnist, by Saudi agents in Istanbul. Western
intelligence agencies linked the crown prince to the killing, but he has
denied involvement.

Then, this year, plans for the I.P.O. were revived.

Over
two days of meetings on Sept. 3 and 4, international banks gathered in
Aramco’s London offices to pitch the company for roles on the I.P.O.
underwriting team.

Many of the banks
said they envisioned situations where the company could be worth $2
trillion or more, said four people who attended the meeting, another
three who were briefed on it and documents reviewed by The New York
Times. Bank of America’s estimates reached $2.5 trillion on the high
end, these people added; JPMorgan’s drifted as low as $1.4 trillion,
according to the documents and two people with knowledge of their
presentation.

Around the same time, Prince Mohammed installed Yasir al-Rumayyan,
a close confidant who favored the $2 trillion valuation, as Aramco
chairman, replacing Khalid al-Falih, a former Aramco chief executive
with an engineering background. Mr. al-Rumayyan, the powerful governor
of the kingdom’s $320 billion Public Investment Fund, had discussed the
plans with bank officials over the summer.

Then on Sept. 14, on its path to going public, Aramco was jarred by an aerial attack on its production facilities,
blamed on Iran, that temporarily cut its oil output in half. The attack
underscored the risk of operating in the Middle East, but it did not
deter the march to an I.P.O.

Deal makers soon
fanned out over Asia, Europe and North America to gauge interest in
Aramco by Fidelity Investments, Capital Group, BlackRock and other major
investors. To make Aramco more attractive, the banks persuaded it to
establish an enormous investor dividend, or annual payout — $75 billion a
year.

But in meetings with roughly
80 mutual funds, hedge funds and sovereign wealth funds, underwriters
and investors said, potential buyers balked at the $2 trillion
valuation, which struck them as too high relative to other major oil
companies and in light of low oil prices, climate-change concerns and
other geopolitical pressures.

“We felt
that a valuation in the range of $1.2 to $1.3 trillion would represent
fair value,” or a reasonable price, “but it would need to I.P.O. at less
than that to offer decent upside,” or investor profit potential, said
Tal Lomnitzer, a portfolio manager at the fund company Janus Henderson
who participated in the early investor discussions.

His
was in some ways the typical buyer’s position at the onset of a
negotiation: to argue for the lowest price in hopes of making money on
the purchase if Aramco shares went up in public-market trading. But
given the wide gap between views like Mr. Lomnitzer’s and the Saudi
government’s $2 trillion expectations, some of the bankers were
concerned.

Then came the meeting on
Oct. 15 at Aramco’s headquarters in Dhahran on the kingdom’s Persian
Gulf coast, and one that would follow the next day. Of all the crucial
moments in the lead-up to the I.P.O., these gatherings may have been the
most tense, according to four people who either attended the meetings
or were briefed afterward. It was then that some of the bankers —
motivated by the promise of enormous fees for evaluating the oil
company’s investment potential and then selling shares to respected
investors — clashed with kingdom officials and other advisers who were
fixating on an increasingly elusive $2 trillion deal.

The
banks, who had been sizing up investor demand for the I.P.O., delivered
their findings to Amin H. Nasser, Aramco’s chief executive. Mr. Nasser
was angry and taken aback by the news,said
two people who were in the room and three others briefed on it later.
He pointed out that some of the bankers had promised an Aramco valuation
of even more than $2 trillion, and that his company had curbed spending
plans and made other changes to accommodate the $75 billion dividend.

After the tense exchange, the bankers piled into cars and drove four
hours across the desert to Riyadh to explain their reports, one by one,
to Mr. al-Rumayyan, the Aramco chairman, said two of the people who were
on the trip.

Mr. al-Rumayyan
was also deeply unhappy. During the JPMorgan group’s presentation,
according to four people with knowledge of the meeting,he
criticized them for talking the valuation down. By the next day, Oct.
16, when the banking syndicate met to regroup, two camps had emerged:
Citigroup, Goldman Sachs and Bank of America said that until they could
share additional research on Aramco’s finances and hold more detailed
conversations with potential buyers, they could not determine what price
investors would truly be willing to pay, said three people who were
part of the discussion and three who were briefed on it later.

Bankers
from Morgan Stanley and JPMorgan, who had been working on the deal for
years, were skeptical that investors would be willing to pay much more
than they were already suggesting. The bankers argued that Saudi
officials in charge of the I.P.O. should be given more details on why
investors were cooler to the deal than expected. Underscoring that
point, said three people who were there, was Franck Petitgas, head of
Morgan Stanley’s international division, who asked how the underwriters
could, in good conscience, not share the dozens of investor comments the
bankers received in their initial meetings. (Through a spokesman, Mr.
Petitgas declined to comment.)

Michael Klein, a New York investment banker who was hiredto
advise Aramco, urged the more forward-looking approach. After another
meeting with the bankers, a Saudi I.P.O. committee opted to delay the
deal to hold additional investor discussions.

Aramco
decided to carry on and on Nov. 3 issued its formal plan to go public.
Its prospectus reported enormous profit — $68 billion for the first nine
months of the year. But there were also caveats: Those earnings were
down 18 percent from the year before, and risk factors to investing in
the I.P.O. ranged from concerns over the impact of fossil fuels to the
possibility of terrorist attacks.

The
banks talked with investors, but their prices didn’t fundamentally
change; at meetings held Nov. 15 and Nov. 16 with Mr. al-Rumayyan in
Riyadh, banks reported that foreign investors were still valuing Aramco
somewhere between $1.3 trillion and $1.8 trillion, according to two
people who were there.

Faced with
that, the kingdom abruptly canceled a series of more formal investor
meetings in Asia, Europe and North America. It relegated most of the
American banks to lesser roles and refocused on the plans for a domestic
listing.

In
the run-up to the I.P.O., interest in Aramco shares in Saudi Arabia
appeared strong, buoyed by a substantial marketing campaign and
low-interest-rate loans for stock purchases.

Hussam
A. al-Saleh, a financial adviser based in Riyadh, predicted last month
that most of his Saudi clients would wind up buying shares. Some of the
interest stemmed from Aramco’s reputation in the kingdom as a classic
stock, he said: “People believe in the company.”

And for the Saudi leadership, the pursuit of a $2 trillion valuation continues.

“It
will be higher than the $2 trillion. I can bet that this will happen,”
said Prince Abdulaziz bin Salman, the Saudi energy minister, who is the
half brother of Prince Mohammed, speaking Friday at an OPEC news
conference.

“It is the proudest day
for Prince Mohammed to celebrate,” he said, referring to the offering.
“We kept it to our family and friends.”

Kate
Kelly is a reporter in the Business section, where she covers big
banks, trading and lending, and the crucial players setting financial
policy in both politics and business. She is also the author with Robin
Pogrebin of "The Education of Brett Kavanaugh: An Investigation." @katekelly

Stanley
Reed has been writing from London for The Times since 2012 on energy,
the environment and the Middle East. Prior to that he was London bureau
chief for BusinessWeek magazine. @stanleyreed12•Facebook

A version of this article appears in print on Dec. 7, 2019, Section B, Page 1 of the New York edition with the headline: A $2 Trillion Wish That the Markets Just Couldn’t Grant. Order Reprints | Today’s Paper | Subscribe